February 5, 2005

Illegal basement flat proves costly mistake

Is a homebuyer entitled to know in advance whether a basement apartment is
legal or not? Does a real estate agent have an obligation to disclose to
potential purchasers if a second suite in a single-family home complies
fully with zoning bylaws, building code and fire code?

I've spent some time recently reading realtor ads for Toronto-area homes
with basement units. They present an interesting range of wording, from a
simple statement that the home contains a "basement apartment," to the
puzzling "basement apartment (non-retrofit)" and finally to the more
definitive "basement apartment with retrofit."

Of course, what's missing in each case is one of two words, which I have yet
to see in a real estate ad: either the word "legal" or the word "illegal."

For obvious reasons, homes are almost never advertised as having a basement
apartment, which is either illegal (it's not a great marketing tool) or
legal (no-one wants to sign a guarantee that the unit complies with all
applicable laws and regulations).

As I pointed out in this column last week, there is no single government
authority, which provides written certification that any given basement unit
is legal. A fire code retrofit certificate is only one of a number of
requirements necessary to certify legal status.

Owners must also be able to certify compliance with regulations of the
Electrical Safety Authority and with all applicable zoning and housing
standards bylaws. These relate to things like ceiling height, window size,
parking spaces, smoke detectors, bathroom ventilation, and the fact that
basement units cannot be created in homes less than five years old.

Something as simple as a loose or missing handrail down a staircase can turn
an otherwise legal apartment into one which does not comply with housing
standards regulations.

One real estate agent found out the hard way recently that the failure to
reveal clearly that a basement bedroom was illegal can be extremely costly.

Back in 2001, James and Eila Morrison hired David Nelson as their real
estate agent to find a house for them in Sault Ste. Marie, Ont. They
specifically told Nelson that they required a house with four bedrooms.

Nelson was present with the Morrisons when they viewed a house on Birkshire
Pl., which had a basement room containing a bed, a desk and a filing
cabinet. Assuming this was a fourth bedroom, the Morrisons signed an
agreement to buy the house.

Before closing, the Morrisons discovered that Sault Ste. Marie has a bylaw
that prohibits bedrooms below ground level (Toronto does not have an
equivalent bylaw.)

They refused to close the deal and were sued for damages by the owner
Margaret Jean Malpass.

Before trial, James Morrison died and Eila Morrison settled the action with
the seller Margaret Jean Malpass by paying her $50,800 plus expenses.

Following the settlement, Morrison pursued her claim against the agent,
Nelson, for negligence, breach of contract, and breach of his trust duty to
her.

At trial last year, Morrison's evidence was that Nelson did not mention the
bylaw that prohibited basement bedrooms, nor did he correct the impression
she may have had that the basement room was a legal bedroom. The property
feature sheet did not indicate four bedrooms.

Nelson, on the other hand, testified that he discussed the legality of a
basement bedroom with the Morrisons, and he told them that the Birkshire Pl.
house only had three bedrooms.

In November, last year, the court awarded Morrison more than $62,000
representing the settlement she had made with the vendor.

Justice Peter Grossi ruled that Nelson owed the Morrisons a positive duty to
tell them that he believed the basement bedroom might not comply with the
municipal bylaw. He wrote in his judgment that an agent must fully and
fairly disclose to his clients all material information regarding the
property, which might affect their decision-making.

Applying this decision to the thousands of Toronto basement apartments may
well mean that purchasers in this city are entitled to full disclosure from
their agents of the legal - or illegal - status of below-ground units.

Wording like "basement apartment (non retrofit)" and even "basement
apartment with retrofit" in real estate ads might not be sufficient any
longer.

Do you have an interesting basement apartment story? I'd love to hear from
you by fax or e-mail.

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Bob Aaron is a Toronto real estate lawyer. He can be reached by e-mail at bob@aaron.ca,
phone 416-364-9366 or fax 416-364-3818. Visit
http://www.aaron.ca

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.